Manufacturing capacity utilisation falls further

Event

In November the seasonally adjusted manufacturing capacity utilisation rate, published by the Central Bank of Turkey, fell to 73.7%, from 75% in October and 75.8% in September.

Analysis

Real GDP grew by 7.3% year on year in the first quarter of 2018, 5.3% in the second quarter and 1.6% in the third. This period was marked by intense lira depreciation against the US dollar, which sparked a surge in inflation and interest rates, further exposed the financial weaknesses of the private sector and caused economic confidence to plummet.

The figures for capacity utilisation in manufacturing industry suggest that the economy continued to cool in November. The November figure was the lowest since March 2010, when the economy was coming out of the recession caused by the global financial crisis of 2008. On an unadjusted basis, capacity utilisation was particularly low in the consumer durables (69.8%) and chemicals (52.3%) industries. By contrast, the central bank's seasonally adjusted real sector confidence index, which measures sentiment in manufacturing industry, picked up to 96.8 points in November, from 91.1 points in October and 90.4 in September. This was largely related to the recent partial recovery in the lira and the modest easing of market interest rates in recent weeks. Pessimism about the general economic situation abated; the index for this indicator recovered to 90 points, the highest since April, from 66.4 in October and 55.6 in September. In addition, manufacturers expected increases in export orders and overall production levels over the coming three months.

For similar reasons, the consumer confidence index for November, calculated jointly by the Turkish Statistical Institute (Turkstat) and the Central Bank of Turkey, picked up to 59.6 points in November following record lows of 57.3 in October and 59.3 in September. Meanwhile the seasonally adjusted services and retail trade confidence indicators published by Tukstat improved to 79.8 and 90.7 points respectively, after reaching lows of 75.7 and 87 respectively in October. However, Turkstat's seasonally adjusted construction sector confidence index fell to 56.6 points in November, from 58.7 a month earlier.

Impact on the forecast

The latest indicators are in line with our expectation of real GDP growth of 3.1% in 2018. For 2019, we continue to forecast 1% GDP growth, with global liquidity tightening keeping the lira under pressure and the current downturn persisting into the year.